<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _____ to ______
Commission file number 1-9310
CARE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3311961
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2742 Dow Avenue, Tustin, California 92680-7245
(Address of principal executive offices) (Zip Code)
(714) 544-4443
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes _X_ No ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes _X_ No ___
Number of shares outstanding as of April 4, 1994: Common Stock: 13,243,918
Total Number Of Pages: 13<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 1994 (Unaudited)
and December 31, 1993 3
Consolidated Statements of Operations for the three months
ended March 31, 1994 and 1993 (Unaudited) 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1994 and 1993 (Unaudited) 5
Consolidated Statement of Shareholders' Equity for the three
months ended March 31, 1994 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
All other items are omitted because they are not applicable.
2<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares and par values)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 12,415 $ 12,985
Receivables:
Due from patients, less allowance for
doubtful accounts of $1,743 and $1,633 for
1994 and 1993, respectively 19,057 17,149
Notes and other 3,184 4,492
Supplies inventory 1,461 1,470
Prepaid expenses 1,071 1,254
Deferred income taxes 3,651 3,982
---------- ----------
TOTAL CURRENT ASSETS 40,839 41,332
PROPERTY AND EQUIPMENT, net 68,800 69,386
MORTGAGE NOTES RECEIVABLE, less allowance for
losses of $1,652 and $1,664 for 1994 and 1993,
respectively 1,322 2,175
OTHER ASSETS 9,033 8,505
---------- ----------
$ 119,994 $ 121,398
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $ 814 $ 1,139
Accounts payable 11,147 11,716
Accrued liabilities 18,388 19,623
Other current liabilities - - 3,085
---------- ----------
TOTAL CURRENT LIABILITIES 30,349 35,563
LONG TERM DEBT 41,552 41,601
DEFERRED INCOME TAXES 6,149 6,812
OTHER NONCURRENT LIABILITIES AND DEFERRED ITEMS 11,950 11,949
---------- ----------
TOTAL LIABILITIES 90,000 95,925
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value; Authorized
1,000,000 shares; issued and outstanding - none - - - -
Common stock, $.01 par value; Authorized 25,000,000;
issued and outstanding - 13,244,000 and 13,234,000
shares for 1994 and 1993, respectively 11,095 11,076
Additional capital 4,811 1,451
Retained earnings 14,088 12,946
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 29,994 25,473
---------- ----------
$ 119,994 $ 121,398
========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
3<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
NET REVENUES $ 53,149 $ 47,928
DIRECT EXPENSES
Salaries and wages 24,203 22,495
Share appreciation rights 317 155
Employee benefits 7,337 6,510
Supplies and other expenses 8,406 7,300
Purchased services 5,261 4,347
Professional fees 375 498
Other costs and expenses 1,126 869
---------- ----------
TOTAL DIRECT EXPENSES 47,025 42,174
PROPERTY EXPENSES
Lease, rent and property taxes 2,030 1,932
Depreciation and amortization 1,286 1,306
Interest 966 855
---------- ----------
TOTAL PROPERTY EXPENSES 4,282 4,093
---------- ----------
INCOME BEFORE INCOME TAXES 1,842 1,661
PROVISION FOR INCOME TAXES 700 665
---------- ----------
NET INCOME $ 1,142 $ 996
========== ==========
INCOME PER SHARE $ 0.09 $ 0.08
========== ==========
Average shares outstanding 13,394 13,262
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
4<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,142 $ 996
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 1,286 1,306
Provision for doubtful accounts 124 194
Deferred income taxes and charge in lieu of taxes 418 141
Other, net ( 22) ( 234)
Changes in assets and liabilities:
Accounts receivable ( 2,032) ( 358)
Other current assets 192 72
Notes and other receivables 2,123 ( 114)
Other assets ( 552) 18
Accounts payable and accrued liabilities 806 64
Other current liabilities ( 3,085) ( 517)
Other noncurrent liabilities and deferred items 1 6
---------- ----------
Total adjustments ( 741) 578
---------- ----------
Net cash provided by operating activities 401 1,574
CASH FLOWS FROM INVESTING ACTIVITIES
Payments received on mortgage notes receivable 75 38
Payments for property additions ( 688) ( 692)
---------- ----------
Net cash used by investing activities ( 613) ( 654)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on term notes, mortgage debt
and capitalized leases ( 377) ( 2,587)
Proceeds from exercise of stock options 19 --
---------- ----------
Net cash used by financing activities ( 358) ( 2,587)
---------- ----------
NET DECREASE IN CASH ( 570) ( 1,667)
CASH AT BEGINNING OF PERIOD 12,985 7,283
---------- ----------
CASH AT END OF PERIOD $ 12,415 $ 5,616
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 447 $ 958
Taxes paid $( 7) $ 154
</TABLE>
See Notes to Consolidated Financial Statements
5<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional Retained
Shares Amount Capital Earnings Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE at December 31, 1993 13,234 $ 11,076 $ 1,451 $ 12,946 $ 25,473
Exercise of stock options 10 19 19
Additional capital resulting
use of pre-reorganization
tax NOL's (Note 3) 2,610 2,610
Charge in lieu of income taxes 750 750
Net income 1,142 1,142
---------- ---------- ---------- ---------- ----------
BALANCE at March 31, 1994 13,244 $ 11,095 $ 4,811 $ 14,088 $ 29,994
========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
6<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements and related notes have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have not been presented. The
accompanying unaudited consolidated financial statements and related notes
should be read in conjunction with the financial statements and related notes
included in the Company's report to the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 1993.
In the opinion of the management of Care, all material adjustments necessary
to present fairly the Company's financial condition, its results of operations
and changes in financial position have been made. All material intercompany
balances, profits and transactions have been eliminated. Certain prior period
balances have been reclassified to conform to current period classifications.
The consolidated results of operations for the three months ended March 31,
1994 are not necessarily indicative of the consolidated operating results for
a full year.
NOTE 2 - MERGER
On April 4, 1994, Care and Regency Health Services, Inc. ("Regency") completed
their previously announced merger. Pursuant to the Agreement and Plan of Merger
dated as of December 20, 1993, as amended, Care Merger Sub, Inc., a wholly-owned
subsidiary of Regency, was merged with and into Care, and Care became a wholly-
owned subsidiary of Regency. Each share of common stock of Care was converted
into 0.71 share of common stock of Regency.
NOTE 3 - INCOME TAXES
As of December 31, 1993 Care had claimed a federal net operating loss
carryforward for tax purposes ("Tax NOL") of approximately $93,200,000 and
credit carryforwards of approximately $4,000,000. However, when the Company's
Plan of Reorganization was confirmed, an ownership change as defined in Internal
Revenue Code Section 382 occurred. The Company had previously determined that
this ownership change may subject the pre-confirmation Tax NOL and carryforwards
to an annual limitation of approximately $300,000; a maximum of $3,300,000 was
expected to be available for use prior to expiration.
In March 1994 the Internal Revenue Service issued final regulations relating
to net operating losses, and specifically relating to the determination of
eligibility for the use of Section 382(l)(5). Section 382(l)(5) could reduce
the aggregate Tax NOL and credit carryforwards available but would not limit
their annual use. Based on the new regulations, management believes the Company
qualifies for the use of this section. After applying its provisions, the
amount of Tax NOL available for use is approximately $53,000,000. This amount
is subject to adjustment as a result of the IRS examinations of the Company's
income tax returns for the years 1987 through 1990. In addition, as a result of
the merger with Regency, the Company's use of its Tax NOL will be subject to an
annual limitation of approximately $7,900,000 in periods after the merger.
Based on the new regulations, the Company has reduced its income tax liability
for 1992 and 1993 by an aggregate of $2,610,000, representing the benefit of the
use of the pre-confirmation Tax NOL. This amount has been recorded as an
increase to Additional Capital at March 31, 1994. For 1994, the estimated tax
benefit resulting from the usage of pre-confirmation Tax NOL of $750,000 has
also been recorded as an increase to additional capital, with a corresponding
amount included in the provision for income taxes as a charge in lieu of taxes.
7<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition, Capital Resources and Liquidity
Care's principal source of liquidity continues to be cash provided by
operations. During the three months ended March 31, 1994, cash provided by
operations was approximately $401,000. Cash used in investing activities
totalled $613,000, including capital expenditures of $688,000 partially offset
by collections on notes receivable. Cash used in financing activities was
$358,000, consisting of payments on notes, mortgages, and other debt of $377,000
offset slightly by the proceeds from the exercise of stock options.
The Company's working capital increased by $4,721,000 to $10,490,000 at March
31, 1994. The increase was primarily due to the reduction of the Company's
income tax liability for certain tax years resulting from the utilization of
pre-confirmation Tax NOL's, as discussed in Note 3 to the consolidated financial
statements. Other increases in working capital came from an increase in the
current maturities of mortgage notes receivable and from operations.
On December 30, 1993 Care sold $30,000,000 of its 8.1% Senior Secured Notes to
a number of institutional investors in a private transaction. The notes have
an average maturity of five years and provide for semiannual interest
payments, with annual principal payments of $6,000,000 commencing in January,
1997. The proceeds of the notes were used to pay $18,851,000 of existing
debt, including the remaining balance of $11,569,000 on the Term Notes. An
additional $495,000 was used to pay the outstanding balance of a capitalized
lease obligation and purchase the related facility. Proceeds of the borrowing
were also used to pay costs and expenses of the issuance of the notes
totalling $1,139,000, and $709,000 was used to establish cash escrows with a
title company pending the resolution of certain title and debt payoff related
issues and to pay certain other costs.
In March 1994 Care entered into an $8,000,000 letter of credit facility with
the Bank of America to replace $6,238,000 letters of credit previously issued
by another bank to be used in connection with its self-insured workers'
compensation programs in California and Ohio. The new letter of credit
facility allowed Care to further improve liquidity by substituting an
additional $1,762,000 in letters of credit for cash collateral previously held
by certain regulatory agencies.
8<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
Results of Operations
Summary of Certain Key Operating Statistics
<TABLE>
<CAPTION>
Quarter ended
March 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Nursing and Rehabilitation Centers:
Centers owned or leased and
operated at end of period 50 50
Number of licensed beds 4,792 4,792
Average occupancy 92.4% 93.6%
Patient mix (revenues)
Medicare 32% 28%
Medicaid 49 54
Private 14 15
Managed care and other 5 3
-------- --------
100% 100%
======== ========
</TABLE>
The table above excludes a 248-bed facility which is being managed by Care under
a management agreement and a 64-bed residential facility.
Quarter ended March 31, 1994 compared to 1993
Revenues for the first quarter of 1994 increased by $5,221,000 compared to the
same quarter of 1993. The change consisted primarily of increases of $4,676,000
for nursing and rehabilitation centers and $570,000 for home health, offset by
other changes totalling $25,000. The increase in nursing and rehabilitation
center revenues is attributable to several factors. Medicare revenues increased
by $2,860,000 due to the continued growth of therapy, subacute, and other
specialized clinical services and a 13% increase in Medicare utilization.
Medicaid revenues increased by $410,000 primarily due to rate increases, offset
slightly by lower Medicaid utilization. Managed care revenues increased by
$851,000 principally due to the development of new contracts with managed care
organizations. Home health revenues increased due to continued business
development.
The increase in salaries and employee benefits is the result of wage rate
increases and, to a lesser extent, increased labor hours and the resulting
increase in payroll-related costs for nursing and rehabilitation centers and
home health. The increase in labor hours is primarily the result of growth of
the home health business.
Supplies and other expenses consist of food, routine supplies, costs related to
therapy services, utilities, maintenance and other general and administrative
expenses. The increase in supplies and other expenses is primarily the result
9<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
Results of Operations (continued)
of higher therapy-related costs in the nursing and rehabilitation centers and
home health due to Care's increased provision of those services. The increased
emphasis on the provision of therapy services also resulted in an increase in
the cost for contract therapists, which accounts for most of the increase in
purchased services. Other costs and expenses increased due to the imposition of
a new health care provider tax in West Virginia subsequent to the first quarter
of 1993.
Interest expense increased due to higher outstanding debt balances resulting
from the issuance of $30,000,000 of Care's 8.1% Senior Secured Notes in
December, 1993 to retire $19,346,000 in debt and capitalized lease obligations.
On January 1, 1994 Care assumed the operation of a 64-bed residential facility,
which accounts for most of the increase in lease and rent expense.
10<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Statement regarding computation of earnings per share
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter ended
March 31, 1994:
Date Item Reported
- - ------------------------------- ---------------------------------
January 4, 1994 Merger Agreement with Regency
Health Services, Inc.
January 13, 1994 Sale of Senior Secured Notes
11<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARE ENTERPRISES, INC.
(Registrant)
May 13, 1994 /S/ GARY L. MASSIMINO
- - ----------------------- -----------------------------
Date Gary L. Massimino
Executive Vice President
Chief Financial Officer
12
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Exhibit 11 - Statement re: Computation of Earnings Per Share
(in thousands, except per share amounts)
Three Months Ended
March 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Primary:
Average shares outstanding 13,240 13,222
Net effect of dilutive stock
options based on the treasury
stock method using average
market price 154 40
-------- --------
Total 13,394 13,262
======== ========
Net income $ 1,347 $ 996
======== ========
Per share amount $ 0.10 $ 0.08
======== ========
Fully diluted:
Average shares outstanding 13,240 13,222
Net effect of dilutive stock
options based on the treasury
stock method using average
market price 154 40
Incremental effect of using
quarter-end market price
which is greater than
average market price 6 40
-------- --------
Total 13,400 13,302
======== ========
Net income $ 1,347 $ 996
======== ========
Per share amount $ 0.10 $ 0.07
======== ========
</TABLE>
13
